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Sunday, April 1, 2012

Book Review – ‘The High Beta Rich’ by Robert Frank

In this blog, we would occasionally review a set of interesting books which talk about new concepts in capital markets, stock analysis or wealth creation. Robert Frank, who is also the author of Richistan, a book published in 2008 on excess wealth floating around in this new economy and spending habits of manic wealthy.

The High Beta Rich’ is a new treatise by Robert, who has done again what he does best, i.e. cover the trails of manic wealthy, map their stupendous rise and comment on their equally amazing fall from grace and wealth. The interesting thing about this book is that it draws multiple insights about the world, economy and markets that we live in today. One very powerful insight that Robert brought about towards the end of the book blew me over, and I will talk about that in a while. In a nutshell, the book is so interesting, relevant and fast paced that I couldn’t put it down since this Saturday morning when I got hold of a copy to the next Sunday morning when I finally finished reading all of its 250 pages. That’s when I decided to write a quick review and let you know of the insights that I enjoyed immersing myself in.  

Just to explain the concept of ‘Beta’, it is another name for volatility. Stock markets are volatile, and so are real estate markets and several other commodity prices. They seem to be carrying a high ‘Beta’. Similarly, Robert argues, wealth of the billionaires which is stemming from stocks, real estate and commodity prices is equally volatile and hence the title of the book.

First 8 pages of the book are shocking to say the least, where Robert covers the rise and fall of Tim and Edra Blixseth, the manic wealthy of Palm Springs, California. Blixseth’s holiday time-share business and salesman skills land him a place in Forbes list as one the richest people in America. With the time-share business filing for bankruptcy, Blixseth’s experiences a tremendous fall from grace and wealth. Robert goes on to cover several other case studies, like the Siegel’s, who went on to build the biggest ever home in history of America – 90,000 square feet, only to list it in the market even before its completion – another unfulfilled dream fueled and shattered by volatile riches. Another profile is that of Jack Warner, who life was that of hard won success and he lost everything he had amassed over a lifetime to a cruel realty crash in Florida market.

The important aspect of this book is that it’s not just a set of profiles from rags to riches and back from riches to rags. This book highlights the dangerous times we are all living in. The volatility or Beta is a part and parcel of everyday life we live, in the fuel prices we face, the prices of homes we live in, the prices of gold or silver we own or the prices of Stocks we invest or trade in. The volatility trickles down from the manic wealthy to the bottom of the pyramid and affects states, governments and counties in a equally hard manner. These are dangerous times, and only the most aware would survive.

Robert summarizes this highly recommended primer with the Survival tips for the high beta wealth. And an innocuous comment in the first tip is worth mentioning in silver, covers up the cost of the book and much more for me. S&P is the new GDP.  Allow me to explain.

In the past, common economic thinking has been that stock market is just a mirror of the overall economy and strong economies will have stronger markets and vice versa. With the manic wealth flushing around in the economy, wealth of top spenders in the economy depends much more on the condition of the capital markets, and hence the overall spending and economic activity now depends on health of capital markets. This translates into the simple fact that in these volatile times, economy depends on stock markets, and not the other way round. This is very very powerful insight, it turns the conventional thinking on its head to say the least.  S&P is indeed the new GDP.

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